VAT friendly shredding of unsold stock vs donating!
Toon Hasselman
by Toon Hasselman
Every day, too many unsold products are dumped into landfills because it is cheaper than more sustainable alternatives like donating these goods to charity. The European Environmental Bureau analysis shows the value of destroyed electronics and clothing in the EU will amount to EUR 71.29 billion by 2030 if no new measures are taken.
The EU Parliament and Counsel have agreed on a new regulation (Directive 2009/125/EC, COM(2022)142 final), with the main objective to reduce the negative life cycle and environmental impacts of products. The idea behind this regulation is for businesses to produce durable products which are easier to repair, reuse, and recycle. Businesses that sell clothing and furniture will no longer be allowed to destroy them but must arrange for these products to be recycled. Every EU member state must implement effective, proportionate and dissuasive penalty rules.
The European Green Deal seeks to incentivise more sustainable outcomes. However, in many EU member states companies must pay VAT when donating a product to charity (fictitious supply), or are not allowed to deduct input VAT on goods when landfilling doesn’t trigger a VAT burden (Case C-127/22, 04 May 2023, Balgarska). The value of in-kind donations can be determined as, for example, the production cost or the purchase price (the Netherlands), or the market value (Germany). In some situations, no VAT is due when the value of the gift is less than EUR 15 (Netherlands) or EUR 50 (Germany). This incremental cost makes it expensive for retailers to donate unsold stock to charities on a large scale.
In 2021, the VAT rate system was reformed, allowing member states to implement lower VAT rates for environmentally friendly products and service. According to Commissioner Gentiloni: “The EU VAT Directive allows states to fully remove the VAT costs on charitable donations. Some states have implemented such VAT relief. Many others have not.”
He also stated: “The Commission will continue reflecting on further measures to disincentivise the destruction of goods that are still in good condition, including by way of rules on VAT.”
At the EU level, VAT rules allow for VAT-neutral treatment of in-kind donations, albeit voluntarily, and this leads to different rules depending on the member state. To avoid discrepancies, as member states shop for favourable rules and look to arrange a level playing field for all, it seems necessary that the EU comes up with a clear treatment of in-kind donations for VAT.
GGI member firm EJP Financial Astronauts ‘s-Hertogenbosch, The NetherlandsT: +31 73 850 72 80
Auditing & Accounting, Corporate Finance, Tax
EJP Financial Astronauts are auditors, advisers, and challengers. Their team of 55 consists of auditors, accountants and international tax lawyers who have a wide range of expertise. Their main fields of expertise are Dutch corporate and personal income tax, international taxation, Dutch royalties, interest and dividend withholding tax, estate planning, and wage tax. They have an AFM licence to perform audits for larger mid-sized companies.
Toon Hasselman is an experienced (30 years) high level VAT and customs specialist to both national and international companies. He provides simple and practical solutions, quick “outside the box” alternatives if necessary, and promotes a no-nonsense approach with conclusive solutions at a fair cost. Toon is also the Global Vice Chair of the GGI Indirect Taxes Practice Group. Contact Toon.
